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SulphCo, Inc. (NYSEMKT:SUF)

F2Q09 Earnings Call Transcript

April 2, 2009 at 4:30 pm ET

Executives

Larry Ryan, Ph.D. - Chief Executive Officer & Director

Stanley W. Farmer - Chief Financial Officer & Vice President

Florian Schattenmann - Chief Technology Officer

Analysts

William Holstein - B&H Group LLC

Don Dallesandro - Ameriprise Financial Inc.

Kevin Brady - Raymond James & Associates, Inc.

Ron Bingaman - Crota

Jim Sharoni - Private Investor

Operator

Good afternoon, ladies and gentlemen and welcome to the SulphCo quarterly investor conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Stanley Farmer, Chief Financial Officer. Mr. Farmer, you may begin.

Stanley W. Farmer

Thank you, Martin. Good afternoon and thanks to everyone for joining us on the investor call today. With me on the call today is Dr. Larry Ryan, SulphCo's CEO and Dr. Florian Schattenmann, SulphCo's Chief Technology Officer. Before we get to the body of today's call, I would like to offer the following disclaimer. We have note that some of the information we would hear today may consist of forward-looking statements regarding revenue, memorandum of understanding, test results, margins, operating expenses and future goals. Actual results or trends could differ materially from our forecast. For more information, please refer to risk factors discussed in our Forms 10-K and 10-Q on file with the SEC.

SulphCo's assumes no obligation to update any forward-looking statements of our information as of their respective dates. As Martin said, today's call is being recorded and audio replay will be available on SulphCo's website. Also, we want to make sure that everyone was aware that we had posted slide presentation that we are going to be utilizing in connection with today's call both on SulphCo's website and we have also filed it with the SEC and will be accessible via the SEC's at your database as well just to make sure everyone knows that the presentation is out there and that is what we are going to be using to speak from today.

Just briefly, our agenda for the call today is going to include a Q1 highlights overview that Larry Ryan will present. We will have financial highlights in our IR/PR highlights that I will present. We will have technology update given by Florian Schattenmann and then Larry will take over and finish up with the commercial update and expected next commercial steps.

With that, I would like to turn the call over to Larry to kick off with Q1 highlights.

Larry Ryan, Ph.D.

Thanks Stan. First of all, thanks to everyone for joining the call today. I would like to start with a brief page here on page four of the presentation and this would be the quarter highlights. First of all, we commenced lab-scale and commercial-scale trials with our European Testing Partner. This started in January that consisted of performing laboratory assessment of more than six crude oils and fuel fractions. We operated one of our 15,000 barrel per day Sonocracking unit at their facilities. In those trials, we employed the latest generated ultrasound probe and reactor technology and overall, we observed positive technical and operational results from lab-scale and commercial trials and we will go into that in more details in few minutes.

We have also from all this work, we have established detailed technical plan with our European Testing Partner. We have specific applications and project milestones that have been established and right now, we have a Technology Evaluation Agreement that has been submitted and is under review. We hope to get that executed soon. In terms of other commercial projects, we have progressed quite nicely. We have intensified relationships with a few, global potential strategic customers and again, I will go into some details on this later in our discussion but most importantly, we are well-positioned to 2009. We began reducing our cash burn through some natural attrition in legal and other expenses. We really have focused we have told you in the last two calls that we are focused on our external view of SulphCo and really I think we have been able to rated our visibility in the market in media to several IR and PR programs. So, in nutshell, our technology is sound and the commercial projects are progressing well.

With that, I will transfer it back over to Stan to go through some of the financial highlights.

Stanley W. Farmer

Thanks Larry. There is just few items I want to highlight for the financial highlights in our IR/PR highlights. First off, as we reported in our 2008 Form 10-K as we filed back on March 6 and as of December 31, 2008, we had cash on hand of approximately $17.6 million.

As of March 31, 2009 at the end of the first quarter, we had approximately $13.8 million of cash on hand that we anticipate, based upon current expectations and assumptions, will take us into the early to middle part of 2010. One other matter that we would like to bring our attention to is the fact that we were able to have the going concern paragraph that has historically been in SulphCo's auditors' report or opinion for the past several years removed so we are quite proud of that accomplishment and that bodes well for us looking down the road.

On the IR/PR highlights side; in February, we hired Jeff Freedman as our Vice President of Corporate Development and Jeff has done a great job in helping us get in front of additional potential new investors and he has been quite working out quite well. We have also engaged at the IR/PR firm that we have announced back in February of this year and that has been working out rather nicely as well.

From the Media Exposure side, we have had some of these articles in trade journals that we have referred to in the past that have finally made it to the pipelines and I just wanted to emphasize that that links to all these articles are included on SulphCo's website so if you have had a chance to see them yet, please do. Go to the website and check them out. In March of 2009, we have two articles, Florian Schattenmann, our Chief Technology Officer was interviewed for that appeared, one of them in Chem Info Magazine and the other in the March 2009 issue of E&P Magazine which is a Hart Energy publication. Back in February, an article appeared in the Wall Street Journal, for which Larry Ryan had been interviewed for as part of preparation of the article by the writer Ana Campoy with the Wall Street Journal and that finally made it out as well and then back in January 2009, an interviewed with Florian Schattenmann had done with Lara Abrams of the Abrams Clean Tech Report made it to the print as well.

On the exposure side, we have been more active in getting in front of situations that can is going to give us more exposure. In the past couple of weeks, some of our people including Larry Ryan and Jeff Freedman had entered the 37th Annual Howard Weil Conference where SulphCo hosted a breakfast table and then some of our other employees recently attended the National Petrochemical & Refiners Association Meeting that took place in San Antonio last week and we have been also been very proactive in taking other opportunities we can to get the Company and its current management and the current story of the progress that SulphCo's made in front of new potential investors and we will continue doing that going forward.

With that, I am going to turn it over to Florian Schattenmann for the technology update of the call. Florian?

Florian Schattenmann

Thanks so much, Stan. I am excited about this opportunity to give you a brief update on the current state of our technology. If you look, please turn to page 8. I would like to walk you through this graph as it describes our technology pretty well and I am going to stress this data because they are not coming from a small lab sample. But they actually comes from the field trials late last year and also last year, we did invest in a powerful piece of equipment that Larry has mentioned in the last investor call that allowed us to look on a molecular level at the distribution of sulfur compound in a different crude or distillate stream.

So, if you look at the X axis or the horizontal axis, it is boiling point going up towards the right and the Y axis or vertical axis is the intensity of the peak. If you look at the blue trace, that is actually the distribution of sulfur compound of the feed crude oil, a light crude oil that we tested as we said in the fall last year and I would like to draw your attention to a few piece in the middle of the graph which are called dibenzothiophenes and I put a little box around those. Those happened to be very hard treat sulfur compound that provides quite the required amount of extra energy and catalysts to hydrotreat the incumbent current methodology.

The red trace now is the same oil as to be treated with our SulphCo's process and you can see that most, not all of the compounds that originally were in the oil are now have disappeared and now gone in new compounds with much higher boiling points appear and by using our analytical equipment, we can see that these new compounds are oxidized sulfur compounds. One of them being for instance cut ends of thiophene sulfone that I also highlighted here in red. As I said, you can see an efficient conversion of those sulfides to sulfur oxide and sulfones and why is this important? Well, sulfones have much higher boiling point which means that if you distill the oil now, the sulfur compounds coming a much higher boiling point region or regions of less value that are more polar and the hydrotreat easier. And it is really important to note that the Sonocracking technology performs beest on some hard-to-hydrotreat sulfur compounds like sulfone.

If you could please turn in to the next page, slide number 9, we can apply the same type of technology also in distillate streams. It is just to show you this here. In this case, we used a diesel. We get very similar behavior. Again, the blue trace is the feed of diesel and then the red and green traces are the products after we treated. The two curves just show that we can repeat that extremely well.

If you please turn the page over to page 10, as you may know I have spend the week in our European Testing Partner site together with a staff chemist and we tested various crude oils and diesels on their various conditions and I am really excited to share now the results that we have achieved from that particular trial. You can see that there are five oils, medium and heavy oil and two diesels that we treated. The X axis or horizontal axis shows the percent reduction of sulfur compared to the feed so we are already subtracting it here, it is relative. You can see that the light crude oils are around 60%, medium and heavy crude oils 40% to 50% and diesel typically 70% to 75% in direct sulfur reduction. So, at the current stage, we can produce this type of technology very consistently and reproducibly and it does not matter if we do them lab scale or a pilot scale or in the commercial scale. The technology tracks very well across the different scales.

I mentioned the broad applicability across crude oils and various distillate streams and especially in those streams, appear to work where we get sulfur reductions at 70% and higher, not just the validation part and size, also in many other applications and the customer feedback and really the ease of technical implementation really made us focus a lot on diesel streams and I would like to hand it over here to Larry to cover more of the commercial side of the efforts. Thank you very much.

Larry Ryan, Ph.D.

Thanks Florian. Let us turn a few pages here going through our commercial strategy, the potential for our process in the context of the refining application, the actual process benefit that we have the potential to bring to potential customers and then really go through probably a lot of focus have been looking for which is the process that we are going to bring our technology really to commercialization and we will go through the framework in our process and then I will bring you through where we have been and where we are and where we are going with customers as we sit here today through that process.

So, first if you go to page 12, to give you an idea of our commercial strategy and focus, we are really establishing two or three strategic committed customers and focusing on specific applications to be identified and executed. We are developing detailed technical relationships with technology "champions" within those strategic customers' organizations. We are prioritizing technology-driven, "best" applications in terms of ease of implementation and the best cost/benefits scenario to the customer. Well, I can tell you after discussing a lot of applications with a lot of potential customers, our key customers are telling us that diesel fuels are big opportunity and it is also one of the direct application of the process. But I do want to remind you that we are active in all market segments. We are focusing on the downstream applications first and working towards upstream applications as the full technology package matures.

So, we turn to page 13. Well this is a brief diagram of the simple refinery configuration and what we are trying to show here if you look at, and we will walk as SulphCo inside of them, these are potential locations for our process within this type of configuration. So, as you can see, we have been located, as Florian mentioned, the chemistry is very robust. It is applicable to crudes and fuels, etc. So we can obviously pretreat crudes as they come into the refinery and then obviously we can post treat fuel fraction streams after they have gone through part of the refining process.

I want to draw your attention to a couple of key applications that are boxed in red in the middle of the page and this is really centered around diesel fuel. This is again the customers that we are working with have shown a very large interest in helping solve processing issues and environmental regulations issues associated with diesel fuel in multiple geographies. So, if you look at the diesel fuel options for example, there really are two way that you can look at our process. Option one is that you can use the SulphCo's process prior to the normal hydrodesulfurization process or HDS process or you can use our process as sort of what would be considered a polishing application where you would have a certain amount of part of desulfurization capacity at refinery that might be able to get the sulfur lows and the diesel fuel bounds that say in the couple of hundred a part for million but the problem is the requirement or the fuel requirement in most area that is down now below 15 parts of million and in 10 parts of million lower in a lot of regions.

So, these are two key applications that we believe are the let us call them the easiest to implement from our technology standpoint, the chemistry is very clean. The streams are well characterized. It could be characterized in an analytical way and quite frankly, our customers are telling us that these are applications where they see the most benefit from a cost/benefit scenario.

So, with that backdrop, just to give you on the next page, page 14, an overview of the types of benefits from our process that we are talking to potential customers about. On the commercial side of things, there is a lot that a lot of values of the process can bring in terms of operating off-road diesel and heating oil so that you get higher value diesel. You can do things like improve the diesel quality so you can reduce the need to use high quality blending components. On that part of desulfurization point, I am not going to go through this point by point. Obviously there are pages there in front of you, but just to highlight a few, in hydrodesulfurization or HDS operations, this conversion of dibenzothiophenes to sulfones, this makes them easier to higher to treat. So, in principle, you can avoid high pressure HDS operation. We think that you can increase the HDS catalyst life which leads to fewer turnarounds and downtimes which obviously means less lot products. It is also a lower cost alternative HDS so there is an opportunity to increase the life expectancy of refineries that are limited by their HDS capacity or quite frankly in this capital market by CapEx constraints.

Last but not least on the carbon footprint side of things, there is combination of converting the compounds into easier to hard-to-treat molecules has the potential to require less hydrogen in general and that in turn leads to a lower carbon dioxide production and obviously if you can operate the HDS units at a lower temperature and pressure, you are going to reduce your operating energy requirements. So, there is a big basket of several significant economic advantages but quite frankly the overall benefit will going to be determined by the specific applications.

Okay, we will turn to page 15, the next few pages are probably in my opinion some of the most important in the deck here and let us spend some time and go through this in a little bit of detail because I want folks with the backdrop of where our strategy focus is in conjunction with feedbacks and customers and now hopefully have an idea of the application of our process within sort of the refining constraints. This is the technology and commercialization process as we see it and has it been defined by us with our customers.

So, there are clear let us call the milestones or decision points and then there are clear phases in which work is done that then contributes to reaching one of those milestones or decisions points. So, let us start from left then go to the right. Early on, the relationship or the relationship with the customers starts with a presentation or an introduction being made then there is an initial decision that made by the customers that says this process is either interesting or not. If it is of interest, then we go forward in this introductory phase where things like an nondisclosure agreement or a confidentiality agreement is signed. It ultimately leads to an initial technical assessment and then we will go and give a detailed technical presentation of work to the customer on their requirements and then quite frankly you reach a point where you reach a milestone which is fundamental technology acceptance. So, either at this point the customer agrees, "Yes, you have the technology that we understand and make sense to us," or they say, "You know what, this technology at this point is not really where we are going to go."

So, let us assume now that we go forward to the next part of this process. We now have agreement on the fundamental technology. We then enter into what is really the laboratory phase. This is where we are taking in samples from customers, providing technical feedback to them based on our processing performance. We are also trading information on a customer application side so that we understand perhaps new ounces in their operations that we may not know of and at the end of this phase, really what do you need to have? You have to have promising results. You have to have the technical acceptance and you have to have an application that is now clearly identified by the customer. Also, what is very important, we will talk about this on another page as well is in the point where you really need a technical champion from the customer side because you really need someone now, this is what we would only say, this is where technology starts to go from being a technology push to a technology pull because we now have the final technology based on this need. We see the specific application. This is a really important milestone. This is where you get the customers commitment. This is where now they are asking you the gain. They have invested in in trying to make this process happen.

Once you get that commitment, now you are really in the game of establishing the technologies for specific stream or application within that customer and here is where more detailed work is happening. There are now the transfers of a lot more information between the parties. We now have a lot more detailed analysis on the streams and the byproducts and the downstream applications. So, it can be, there is a lot of application of specific data that is generated here all with the notion of in conjunction assessing the economic situation as you go along and what that really ends up with when all is said and done is you end up at a decision point or a milestone which is what we would consider full technology valid issue. What do we mean by that?

What we mean is you have established favorable process economics. You have established that there are limited technical operational risks. The results are reliable and consistent. The customer has endorsed this. Now, at this point you are asking the customer to take some ownership here from a cross functional standpoint. You are now starting to get out the technology organization more into the business side and operational side of the customer. Of course once they have agreed to do then you are really now entering into a commercial evaluation which ultimately leads the commercialization and this is where you are in the scale of process. You put in full scale units and you are doing long-term testing. You may or may not be paid at this point for the certain applications but clearly the goal here is once you get into the commercial evaluation phase, both sides are committed to making this process happen, in one way, shape, or form in getting to the ultimate goal which would be commercialization.

And when you get commercialization, this is really where this is validation of the technology, the operational aspect in full scale. The customers accepted it. From our perspective, we are going to give them performance guarantees and we are going to have the commercial agreement that governs the relationship going forward. So, it is a long process in words on the page but I really want folks to understand that these are the types of milestones and phases that we are looking at these projects and the context of it.

So, now on the next page, on page 16, let us talk about few of the let us call them strategic government program on the page here to give you an idea of where in this process are we with certain folks. This of course, if you read the yellow box in the page, these are not the only process that we have. There is a whole bunch of additional customers that are in the sort of introductory and laboratory phases where we have samples and we are doing somewhere in the lab to do analysis and we are prioritizing those projects based on a lot of criteria but we really wanted to focus today on the top part of this chart which gives you an idea of the strategic nature and relationships that we are developing.

So, if you look at the top boxes here where it says European Testing Partners, there were the white boxes delineate where we were the last time we spoke to you guys back in December. The green boxes are where are we today and the blue boxes are where we anticipate or project to be sometime in the third quarter. So, if you look for example where we were with our European testing partner, back in December, we had had initial means with these customers. They were in the process of sampling. We had scheduled a trip for Florian to go over to their laboratories and so over the course of the last quarter, that is what we have done. We take, Florian go over there and spent a week or so in their lab. He saw the data that was generated. He saw how robust that data was to a variety of streams. We saw sequentially, we were invited back, worked with that data and establish a relation here in terms of specific applications to go forward with. That has been agreed to. We have also agreed to our project plan going forward so we are really thinking this program if you will from the laboratory phase now well into the stream-specific evacuation. So, we have a clear plan now and a clear application and economic to focus on for execution.

Below this line, we have let us call them three international oil companies that we have been working with. A couple one, we actually had not had any contact with prior to the last of December. The other two, we have had contact off and on with over the past let us say once a year and really now, what we have done is we bile to a number of these companies. We have done very detailed technical presentations. We have gone through a lot of details of this technology and we gotten several instance including the three on this page of these major oil companies that are now really fundamentally accepted technology.

So, where we are as we speak is that we are in the process of getting some of their samples to us so they can based on lab work directly pertinent to their applications and really what we were working with them to do is that by sometime in the third quarter, we want to get a couple of the other opportunities into the stream-specific evaluation phase which really means we want them to have a technical champions and we also wants the customers to be committed to the evaluation of our process within their operations.

So, we made a lot of progress with a lot of larger companies to really get them on board with the technology on fundamental way. There is no longer a discussion around, does the technology work? There is no longer a discussion around, are these technology work? These are all now discussions around, "Okay, we understand it. We like it. Now, let us see how it is going to perform an application that is specific to meet this." So, we really climbed over some hills that we have had in the past and we really getting deep into the technical organizations of these companies.

So, with that, if we turn to the next page which is really what is coming next or what can folks expect and I think what we are trying to establish is that there is a process here. There is key milestone and there is key well-understood phases and technical milestones and commercial milestones that need to be met and there are things that we will continue to update investors on. So, if we look at our European Testing Partner, the next real steps are we are in the process of going back and forth and trying to get the execution of this technology evaluation agreement. We are of course developing applications specific data. We are doing the appropriate economic evaluation using their refinery model based on the technical results and then really we are going out to the point where there is going to be a decision based on the data to enter the commercial phase, again based on the technical and economic merits.

In terms of other opportunities, we are continuing to develop a dimension data package with potentials strategic partners. We are really after obtaining customer commitment towards specific applications again based on the laboratory data and preliminary economic assessment, and really what we are trying to do is engage another one to two strategic customers into the stream-specific application phase for this is a critical milestone. This is where the customer now is committed and has skin in the game to go forward in the evaluation and ultimately the commercialization of our process.

So, I want to keep reiterating that there is the clear process that is established and we are driving the key milestones and decision points. We cannot control obviously all the timing associated with potential customers but we can control everything that is within our control in terms of getting laboratory results back and getting reports back, making sure that we are available to support them. So, we are making a tremendous amount of progress with a lot of different customers. Clearly, our European Testing Partner is ahead of the game in a lot of ways from our perspective and there are key milestones and key developments that are, let us say material events that will help investors keep track of the progress we are making.

So, with that, I would like to turn it over and open it up for some Q&A.

Question-and-Answer Session

Operator

(Operator's instruction) Your next question comes from the line of William Holstein - B&H Group LLC.

William Holstein - B&H Group LLC

It sounds like you are making some progress here. The one thing I took away from this conference call is that you have really decided that you are going to focus on the diesel market initially that that is where the sweet spot for this technology is, that is correct?

Larry Ryan, Ph.D.

Yes.

William Holstein - B&H Group LLC

Okay, then let us talk a little bit about the economies that you had always in the past we have talked about the economics of crude oil.

Larry Ryan, Ph.D.

Sure.

William Holstein - B&H Group LLC

And I noticed some in graph that is more showed us the one crude oil you adjusted was 36.3 API which is a little bit higher API than we had originally talked about to. So, it kind of I know you are still evaluating the economics but give us some idea of what the cost is, how much additive do you need, what is the 70% or 75% reduction in the sulfur, give us as far as potential profit for the customer and just walk us through that really quickly. Where you sense that seems the new focus of the Company.

Larry Ryan, Ph.D.

Well, sure. First of all, let me just make a statement that may not be obvious to most folks. I mean the original technology and pad for the Company obviously were around the treatment of diesel fuel and also that in sulfur comp and all the diesel fuel. So, in some sense, what is really happened over time is that as we develop the technology and started to optimize the probe and the chemistry associated with this, of course, you might guess diesel fuel applications tend to the be ones that migrate to the top and part of the reason for that is that it is a relatively fine item on a sulfur that is present in those streams and from a, clean is the wrong word but let us say from a characterization standpoint, they are a cleaner stream to deal with. Crude oil of course has contained a lot more components.

In terms of the economics, Bill, what I can tell you is that the cost of the process is linked to the amount of sulfur that you want to remove. What I can also tell you is that, and I am going to give you sort of a consulting answer, that the benefits depend and they depend on a number of factors that are really specific to the applications. So, let us walk through of few to give you some numbers. I think in our investor presentation that is online, there is some assessment of the diesel market at least the page where it gives you an idea of the spread between let us say ultra low sulfur diesel and then other grade of diesel and if you go through that, it is in the cents per gallon and when you do all the math, it is on the order of anywhere from $2 to $5 a barrel benefit if you are going to look at the commercial spread for those so that is a, it is not exactly let us say the range of potential benefit is somewhere in that range and our cost to treat those types of streams based upon where we are today in terms of the materials we need to use is extremely cost effective in that regime, okay. So, it is something that we understand pretty well.

William Holstein - B&H Group LLC

Does that mean that the sweet spot is really going to be from LSD to ULSD where you got like 200 parts for million and you want to get it down to 20 where the book is going to be more the really sour stuff and we are going to move it down?

Larry Ryan, Ph.D.

You know what, again, it is sort of depends on the application, right, because not everyone had each one of those problems and quite frankly the, I just want to make sure I answer the right way, there are different points in the process where it makes sense for different folks depending on their refinery configuration. So, if someone had a limited amount of hydrotreating capacity and they can bring the sulfur compounds down to say like a couple hundreds parts to million, obviously for that customer, that is the sweet spot application and there is the types of spreads that I just told you about.

There are a lot of other potential applications out there which involve putting our process either write off the distillation comps and treating the straight run streams. That has a different set of economics. That is a trade off in things like hydrogen consumption and energy consumption in HDS process or we have folks that have very simple refineries with no HDS treatment that would like us to actually treat some light sweet cruise that they have in the process prior to edging the refinery. So, it just matches.

William Holstein - B&H Group LLC

And one quick follow up here, when you said you operated the 15K unit for the European test, how much was that operated and was diesel one of the feedstock that was run through that during that operation?

Larry Ryan, Ph.D.

Diesel was not run through the system in that operation because it was not available but we have run the system for at least for a few days to be able to generate enough sizable quantity samples for analysis.

William Holstein - B&H Group LLC

But you are happy with the amount of oil as far as reliability of the equipment and the probes?

Larry Ryan, Ph.D.

I do not loss any slip over that.

Operator

(Operator's instruction) Your next question comes from the line of Don Dallesandro - Ameriprise Financial Inc.

Don Dallesandro - Ameriprise Financial Inc.

I have a quick question. Back in November, SulphCo announced that there were very positive results from commercial scale field trials. I am wondering what happened there. We have not heard anything after that. I am just kind of curious if those are still in process or that was at an American site.

Larry Ryan, Ph.D.

Sure. The testing that we did in the fall was quite successful and it really, the data that you saw in the other part of the presentation was from those trials. So, clearly we are able to demonstrate the technology on a large scale. Without going to too much detail on the customer and the application, where that application was in the overall market is such that that piece of the market is affected pretty dramatically by the swing in oil prices and also from a technology standpoint, it requires a couple other steps to our process that have mentioned before that we have been in the process of developing for them so it is one of the things where we actually had great results. There are a couple of things we had to follow up on and then the market conditions sort of conspired to make it a little bit of a push at this point.

But what I can tell you is that potential customer is still very interested and is still working with us to figure out a way to make sure that we can capture the benefit but I think it is going to take a little bit of time.

Don Dallesandro - Ameriprise Financial Inc.

Okay, second question, it depends if SulphCo have, do they work in the Emirates at all or they just US patents?

Larry Ryan, Ph.D.

That depends on the patent. We have, I think it is seven or eight US patents that have been issued. Some of those patents have also been issued in other country. I can get the list where I just do not have in front of me and there is a lot of those that are pending in a lot of countries so I have to take a look on that. Some are covered there already. Some are perhaps not pending. I have to check.

Don Dallesandro - Ameriprise Financial Inc.

I was reading a report that I guess, who was it, the old CEO of SulphCo has got some kind of a deal going on at the United Arab Emirates with Petrosonics, Cullen, I think is the name is.

Larry Ryan, Ph.D.

Yes, I know Mark.

Don Dallesandro - Ameriprise Financial Inc.

So, I do not know. I mean I guess I do not know if it is a big competition with SulphCo or not. Did we win like the patent suit to get some in the states here?

Larry Ryan, Ph.D.

Obviously there is a lot of folks that have seen some announcements pertaining to that companies there. What I can tell you is that from our perspective, SulphCo will always protect its intellectual property and we will enforce our intellectual property again to anyone who perhaps would be infringing on that.

Don Dallesandro - Ameriprise Financial Inc.

Great, okay.

Operator

Your next question comes from the line of Kevin Brady - Raymond James Financial, Inc.

Kevin Brady - Raymond James & Associates, Inc.

Wonderful progress, gentlemen. I listened to you two years ago. You said the process was sound and the chemistry was sound so every quarter you seemed to be proving that. Thanks for your work. My question has to do with the reasoning and justification for the auditors to remove the ongoing concern paragraph.

Larry Ryan, Ph.D.

Sure, I will let Stan goes to some details there.

Stanley W. Farmer

Yes, the accounting rules related to the going concern paragraph being inserted in the other report or not are really predicated around whether or not companies able to demonstrate but it is going to have sufficient cash resources, committee’s obligations for the 12 months following the balance sheet date upon which the audit is being given. So, what that is highlighting for investors and what that means from the other’s perspective is that the Company has demonstrated that it has sufficient cash to get beyond year-end that relative to the other report that was issued on December 31, 2008 financials statements.

Kevin Brady - Raymond James & Associates, Inc.

I understand. Thank you.

Operator

Your next question comes from the line of Ron Bingaman - Crota.

Ron Bingaman - Crota

I have two technical concerns. Number one is I do not see. I see the sulfur reduction. I understand the chemistry and all the rest of it but I do not see a meeting the soft respect for saleable product. That is question number A. Question B is I do not see sulfur being removed from the streamline. I see it being converted to a higher volume not component which is all I am going to have be do not work on higher volume for action, what size hurdles are these prior going to commercial?

Larry Ryan, Ph.D.

Sure. Let me address that. What we have shown you on the page here is really to demonstrate that the chemistry has done so that I mean your other vision is correct. What you see on the page is the movement of sulfur components as they are converted from dibenzothiophenes into the oxidized form. Okay, so that is clear.

The subsequent removal of the sulfur components can be done the number of techniques depending on the specific application and the removal of these components can either be done by hydro-treating material. It can be done by re-distilling or distilling the material. It can be done by extracting out this, now polar components that are present in the material or you can actually, in a lot of cases where lower sulfur is present can absorb these several materials out of the stream. So, the choice of how you actually remove those components depends clearly on the economics and clearly on the end goal of the customer.

Ron Bingaman - Crota

But there is a bit of complexity which is typically not touched upon that there is still added plus to remove. You have changed the chemistry but you have not removed them.

Larry Ryan, Ph.D.

No, that is very clear in terms of the data that you see on the page and obviously the customers and folks that we were working with understand that as well and again the types of applications that we are discussing with folks goal everywhere from just treed the crude oil coming into the refinery and then the refinery takes care the rest. So, you could imagine because you have been distributed to sulfur components to the end of the process which is you have a diesel stream that has a couple of hundred parts of million that need to be polished where absorption is absolutely viable in develop technique.

What I will tell you was that although from a technical perspective those are additional processes. These are not additional processes that require inventions. These are additional processes that exist and that people have employed before.

Ron Bingaman - Crota

Are you limited the certain geographies based on tight or soft to one part of the world versus others? If so, which ones are you sort of explain from currently?

Larry Ryan, Ph.D.

Well, yes, it is a good question. Let us say there are a lot of niche opportunities in a lot of different areas but let us say larger, broader opportunities, these in geographies such as South America, Eastern Europe, we have a lot of simple refineries that are making the transition into this European Union, parts of South Asia, a lot of places where refineries were sort of built around indigenous oil that was available to the area.

Ron Bingaman - Crota

Okay. One follow up last question, you have changed the chemistry, I understand that but still has the big removed by some process for another which is going to evolve some cause but it is not possible to overall reduce the cause of the hydro-treating in remitting that way.

Larry Ryan, Ph.D.

Yes.

Ron Bingaman - Crota

Okay. But that would be the main benefit than that I see?

Larry Ryan, Ph.D.

Yes, that is one I missed.

Operator

Your next question comes from the line of Jim Sharoni - Private Investor.

Jim Sharoni - Private Investor

A couple of questions, one, following up on Don’s question and one earlier, I think by Bill, you talked about a range of maybe $2 to $5 of savings talking about a diesel opportunity that you have looked at in Europe. Does that include the cost that Don was just eluded into or would that be reducing that $2 to $5 savings?

Larry Ryan, Ph.D.

Let us make sure we are talking Apples Apple. So, what we were talking about before is a market based spread of available let us say market pricing difference between those two type upgrades. So, in that $2 to $5 that is just the available benefit, okay, out of that of course would need to be deducted a cost, okay, and the comment that I made available earlier is that in a lot of these applications or process is extremely cost effective to be employed. I did not give any specific numbers around that because it varies by application but let us say that out of that $2 to $5 you absolutely have to take out the cost and of course we have included the cost of items has been discussed here in fact within to our overall costs.

Jim Sharoni - Private Investor

Okay, so the costs that you and Don were discussing are included in that which you considered to be a fairly minimal cost?

Larry Ryan, Ph.D.

Yes, I have been minimal a relative term, well, that was that cost effective.

Jim Sharoni - Private Investor

Okay, and then a technical question, in some of the last caller too, there was discussion about the part of the way that you are getting to the high reduction of sulfur level is by doing what I understood to be at least one more pass through the same equipment, am I correct in that assumption first of all?

Larry Ryan, Ph.D.

No.

Jim Sharoni - Private Investor

No, so, this is…when you are talking about 40% to 75% reductions that is one time through our Sonocracking equipment?

Larry Ryan, Ph.D.

Correct.

Jim Sharoni - Private Investor

Okay, thanks, that is it for me.

Larry Ryan, Ph.D.

Thank you. With that I would like to take the opportunity to thank everyone for taking the time this afternoon and joining us on the call. We appreciate your feedback and as always we are committed to hopefully now you have looked to in terms of the process that we are following at the milestones that you can be looking for with customers as we need them and we look forward to keeping you posted on our activities and we will speak you again of course at least by the end of the next quarter, hopefully before then.

So, with that have a good evening. Thank you very much.

Operator

Ladies and gentlemen this concludes today’s conference. Thank you for participating. You may now disconnect.

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Source: SulphCo, Inc. F2Q09 Earnings Call Transcript
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